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Inclusive Growth – Poverty, Inequality and Employment

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Fabio Veras Soares, Raquel Ramos and Rafael Ranieri …

Fabio Veras Soares, Raquel Ramos and Rafael Ranieri
IPC-IG
Inclusive Growth: Building a concept
Asia Public Policy Forum 2013
Jakarta, Indonesia May 28-30, 2013

Published in Technology , Economy & Finance
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  • 1. 0 Inclusive Growth – Poverty, Inequality and Employment Fabio Veras Soares, Raquel Ramos and Rafael Ranieri IPC-IG Asia Public Policy Forum 2013 Jakarta, Indonesia May 28-30, 2013
  • 2. Inclusive Growth: Building a concept Inclusive growth has become a central idea in the development literature and in the political discourse in many countries. However, there is no clear consensus about what it entails and how to measure it. How does it differ from the concept(s) of pro-poor growth? How would an inclusive growth approach contribute to the development policy thinking? 1
  • 3. Inclusive Growth: Building a concept IPC papers: Ramos, R. and Ranieri, R. (2013) “Inclusive Growth: Building up a concept”. IPC-IG Working paper series, N. 104. http://www.ipc-undp.org/pub/IPCWorkingPaper104.pdf Ramos, R; Ranieri, R and Lammens, J. (2013) “Mapping Inclusive Growth”. IPC-IG Working paper series, N. 105. http://www.ipc-undp.org/pub/IPCWorkingPaper105.pdf Ramos, R. and Ruhl, D. (2013) “The Employment to Population ration as an indicator of Participation and Inclusiveness”. IPC-IG Policy Research Brief, N. 39. http://www.ipc-undp.org/pub/IPCPolicyResearchBrief39.pdf 2
  • 4. Growth, Poverty and Inequality… 1950s – 1970s: –Trade‐offs between growth and income inequality –Trickle-down effects of growth –Development as an inevitable progression 1970s – 1980s: –Poverty constrains economic growth –Development requires engagement Since the late 1990s: –MDGs: targets require policies & coherent strategies –Growth alone is not sufficient. How to ensure that growth ameliorates the lot of the poor? – pro-poor –What about inequality? Gradually integrated 3
  • 5. Inclusive Growth: Building a concept Kuznet’s hypothesis – inverted U relationship between growh and inequality. Natural evolution process – one should not worry about inequality – it is positive for growth and it will eventudally be brought down by the growth process itself through a trickle down process. Experience of many developing countries defies this interpretation as different growth trajectories were observed and a turning point was not a natural result. Growth that generates inequality could bring down growth potential as the poor would under-invest in their human capital bringing down productivity and wages. 4
  • 6. Pro-poor growth Redistributive policies have the potential to promote/enhance the growth process. Growth and equity can and should go hand in hand as a result of the rejection of the Kuznet’s hypothesis. Asian tiger’s had a major role in showing that rapid and sutained growth could take place with stable and low inequality. Despite recognizing the centrality of growth for poverty reduction, the literature started acknowledging that redistributive growth was more effective for poverty reduction than distribution- neutral growth. 5
  • 7. Pro-poor growth The notion of pro-poor growth was a clear response to the trickle down approach. But there was no consensus with regard to its definition… Is pro-poor growth any growth that benefits the poor? “Weak absolute pro-poor growth” (Glosse et al. 2008) – any growth episode during which the poverty rate declines, regardless to what happens to inequality. “Weak relative pro-poor growth” – it requires than the poor people income grows at a higher rate than the richer people. In this case, pro-poor growth also decreases inequality. “Strong absolute inequality” – absolute increases in income of the poor are larger than absolute increases in the income of the wealthier. 6
  • 8. Pro-poor growth Policy implication: how to promote pro-poor growth? Bias toward the poor? (Kakwani & Pernia, 2003) Promoting growth would favour the poor? (Dollar and Kray, 2000) Growth with redistribution would help to accelerate poverty reduction. (Ravallion, 2004). Non-income dimension: multidimensional poverty makes brings more complexity to the assessment of pro-poorness of growth. 7
  • 9. Inclusive Growth Kakwani and Pernia (2000) “pro-poor growth as a growth process that enables the poor to actively particpate in and significantly benefit from economic activity”- a inclusive economic growth. Pro-poor growth: focus on poverty and inequality (level and distribution of income) with non-income dimension incorporated later (still as outcomes – benefit sharing). Inclusive growth: process – the idea of participation, beyond benefit-sharing. Opposite of participation is exclusion – vulnerable groups. 8
  • 10. Inclusive Growth Other views: all should benefit from the growth process. Non-zero sum game – the benefit of the poor helps to increase benefit for the richer. Ali and Son (2007) focus on opportunities rather than outcomes. Ianchovichina and Lundstrom (2009) focus on the sustainability of the growth process and emphasis on the need to foster “productive employment”. Pro-poor and inclusive growth can be differentiated by the focus on the “process” of the latter: extensive contribution of inputs from the labour force and non-discrimination (Klassen, 2010). 9
  • 11. Inclusive Growth Empirical challenge – how to measure IG: Benefit-sharing: poverty and inequality (Outcome) Participation: participation in the labour market in a productive/decent fashion and no discrimination of specific groups (ethnic, age and gender based discrimination) – process and outcome. 10
  • 12. Inclusive Growth McKinley (2010) IG index based on ADB Long-Term Strategic framework 2008-2020 based on the notion that IG entails: i) Achieving sustainable growth that will create and expand economic opportunities, and ii) Ensuring broader access to these opportunities so that members of society can participate in and benefit from growth. Components: productive employment; economic infrastructure, income poverty and equity, gender equity, human capabilities and social protection. 11
  • 13. Inclusive Growth Difficulties in measuring the process: Productive employment – identified as the key missing element/input, but how to define what is productive employment. Classification may vary from country to country. Sector/wage-based classification may lead to different results. Lack of data. EPR is more general: low EPR is not inclusive, but high EPR is not always good, given large proportion of working poor in very poor countries. 12
  • 14. Inclusive Growth Poverty Inequality Benefitsof growth Growth Participation Productive employment Capabilities/ Empowerment Opportunity Gender Inequality Accessto infrastructure Social Protection Targeted Policies BasicSocial Services Good governance Barriersfor investment Ravallion and Chen (2003) x Osmani (2004)* x Stewart (2004)* x Bhalla (2007) x x x Ianchovichina, Lundstrom and Garrido (2009) x x x x Habito (2009) x McCulloch and Baulch (2000) x x x Kakwani and Pernia (2000) x x x White and Anderson (2001) x Son (2003) x x Kakwani, Khandker and Son (2004) x x x Son and Kakwani (2004) x x x Kraay (2004) - IMF x x Minujin (2004)* x x x Lipton (2004)* x x White (2004)* x Ali and Son (2007) x x Grosse, Harttgen, and Klasen (2008) x x x Son and Kakwani (2008) x x Klasen (2010) x x Rauniyar (2010) x Kanbur (2010) x x x x x x x McKinley (2011) x x x x x x x x x x 08/05/2013 13
  • 15. The concept of Inclusive Growth Benefit- sharing 08/05/2013 h Poverty Inequality Participati on (Productive) Employment Outcome Process
  • 16. Inclusive Growth Inclusive Growth: An intuitively straightforward and yet elusive concept; that determines policy objectives! What makes growth inclusive? How to assess the relationship between growth and any element of inclusiveness? Deeming a growth episode inclusive is sufficient to establish that the process of growth and the country are inclusive? GDP versus Familiy’s income: National accounts and Household survey data. 15
  • 17. References 20/06/2013 GDN 14th Annual Global Development Conference 16 Kuznets, S. (1955). ‘Economic Growth and Income Inequality’, The American Economic Review, Vol. 45, No. 1: 1–28. Lopez, J.H. (2004). Pro-poor growth: a review of what we know (and of what we don’t know). Washington, DC, World Bank. McKinley, T. (2010). ‘Inclusive Growth Criteria and Indicators: An Inclusive Growth Index for Diagnosis of Country Progress’, ADB Sustainable Development Working Paper Series, No. 14. Mandaluyong City, Philippines, Asian Development Bank. Ramos, R.A., Ranieri, R. and Lammens, J.W. (2013). ‘Mapping Inclusive Growth in Developing Countries’, IPC-IG Working Paper, No. 105. Brasília, International Policy Centre for Inclusive Growth. Rauniyar, G. and Kanbur, R. (2010). Inclusive Development: Two Papers on Conceptualization, Application, and the ADB Perspective. Mandaluyong City, Philippines, Asian Development Bank. Ravallion, M. (2004). Pro-poor Growth: A Primer. Washington, DC, World Bank Development Research Group. Rostow, W.W. (1956). ‘The Take-Off Into Self-Sustained Growth’, The Economic Journal, Vol. 66, No. 261: 25–48. Stiglitz. J.E. and Squire, L. (1998). ‘International Development: Is it Possible?’, Foreign Policy, Issue 110: 138–151. Zepeda, E. (2004). ‘Pro-poor Growth: What Is It?,’ IPC-IG One Pager, No. 1. Brasília, International Policy Centre for Inclusive Growth.
  • 18. Many Thanks 17